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Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
Š•™‘ȱǯȱ‘’Žȱ
ŽŒ’˜—ȱŽœŽŠ›Œ‘ȱŠ—ŠŽ›ȱ
Ž——’œȱǯȱ‘’Ž•œȱ
—Š•¢œȱ’—ȱ›’Œž•ž›Š•ȱ˜•’Œ¢ȱ
Š—žŠ›¢ȱŘŘǰȱŘŖŖşȱ
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
ǯŒ›œǯ˜Ÿȱ
řŚŖřŜȱ
ȱŽ™˜›ȱ˜›ȱ˜—›Žœœ
Prepared for Members and Committees of Congress
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ž––Š›¢ȱ
Two ongoing federal programs that support the price and income received by dairy farmers—the
dairy price support program and the Milk Income Loss Contract (MILC) program—were
reauthorized with modifications in the Food, Conservation, and Energy Act of 2008 (P.L. 110246, the 2008 farm bill).
The MILC program allows participating dairy farmers to receive a government payment when the
farm price of milk used for fluid consumption falls below an established target price. The enacted
2008 farm bill extends the MILC program through FY2012 at the existing level of support, but
increases the payment percentage rate and the amount of eligible production. The target price also
can be increased in any month that feed costs are above a certain threshold. The MILC program is
supported by milk producer groups in the Northeast and the Upper Midwest. Large farmers,
particularly in the West, contend that the program payment limit is biased against them. Market
prices for farm milk have recently declined to levels near the target price, increasing the
likelihood of MILC payments in 2009.
Separately, under previous farm law, the dairy price support program indirectly supported the
farm price of milk at $9.90 per hundredweight (cwt.) through government purchases of surplus
dairy products from dairy processors. The 2008 farm bill extends the dairy support program
through December 31, 2012, but modifies the program so that it directly supports the prices of
dairy products at mandated levels. This program shift was designed to help reduce the program’s
exposure under World Trade Organization limitations. Most dairy farm groups and the
Administration view the program as a necessary safety net in a market that is frequently
characterized by volatile prices. Dairy processors consider the price support and MILC programs
to operate at cross-purposes, which they say contributes to surplus milk production. A recent milk
product price decline has resulted in government purchases of nonfat dry milk.
A third federal dairy pricing policy tool, federal milk marketing orders, requires dairy processors
in many regions to pay a minimum price for farm milk depending on its end use. Federal orders
are permanently authorized and most changes are made administratively by USDA through the
rulemaking process. However, a number of federal order issues were brought to the attention of
Congress for the farm bill debate. Included in the final bill is a provision that exempts dairy
processors from paying the federal minimum price whenever they forward contract prices with
dairy farmers for milk used in manufactured products.
Separately, the enacted 2008 farm bill reauthorizes the Dairy Export Incentive Program, which
subsidizes dairy product exports. The program was created in the 1985 farm bill and was
particularly active during the 1990s.
The enacted 2008 farm bill also contains a provision that allows USDA to implement a 2002 farm
bill-mandated assessment on imported dairy products, but reduces the import assessment to 7.5
cents per cwt. The import assessment is supported by most milk producer groups, but opposed by
dairy importers and processors.
See the Appendix at the end of this report for a side-by-side comparison of the enacted 2008
farm bill dairy provisions with previous law and the House- and Senate-passed versions of the
farm bill.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
˜—Ž—œȱ
Overview ......................................................................................................................................... 1
Milk Income Loss Contract (MILC) Program................................................................................. 2
Background ............................................................................................................................... 2
2008 Farm Bill Provisions and Issues ....................................................................................... 2
MILC Provisions in the 2008 Farm Bill ............................................................................. 3
CBO Cost Estimates ........................................................................................................... 3
Administration and Industry Positions................................................................................ 4
MILC Payments and 2008 Farm Bill Implementation.............................................................. 4
Federal Cost of MILC ............................................................................................................... 5
Dairy Price Support Program .......................................................................................................... 7
2008 Farm Bill Provisions and Issues ....................................................................................... 9
WTO Implications ............................................................................................................ 10
2008 Farm Bill Implementation........................................................................................ 10
Federal Milk Marketing Orders......................................................................................................11
Background ..............................................................................................................................11
2008 Farm Bill Provisions and Issues ..................................................................................... 12
Dairy Forward Contracting ............................................................................................... 12
Streamlining Rulemaking Procedures............................................................................... 13
Dairy Export Incentive Program ................................................................................................... 13
2008 Farm Bill Provisions ...................................................................................................... 14
Dairy Import Assessment .............................................................................................................. 14
2008 Farm Bill Provisions ...................................................................................................... 14
Š‹•Žœȱ
Table 1. Monthly Milk Income Loss Contract (MILC) Payment Rates .......................................... 5
Table 2. MILC Payments Ranked by State, FY2003-FY2007 ........................................................ 6
Table 3. Dairy Price Support Purchases and Costs, 1980/81-2007/08 ............................................ 8
Table 4. Dairy Export Incentive Program Bonuses ....................................................................... 14
™™Ž—’¡Žœȱ
Appendix. Summary of Major Dairy Provisions in the Enacted 2008 Farm Bill:
Comparison with Previous Law and House- and Senate-Passed Bills....................................... 16
˜—ŠŒœȱ
Author Contact Information .......................................................................................................... 20
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ŸŽ›Ÿ’Ž ȱ
The Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill) is the most
recent omnibus farm bill, authorizing or reauthorizing a wide range of programs for a multi-year
period, including commodity price and income support, farm credit, agricultural conservation,
research, rural development, and foreign and domestic food programs, among others. The 2008
farm bill became law on June 18, 2008, after the House and Senate successfully voted to override
a veto of the measure.
Subtitle E of the commodity programs title (Title I) of the enacted 2008 farm bill contains the
authority for two major ongoing dairy policy tools used by the U.S. Department of Agriculture
(USDA) to support the prices and incomes received by dairy farmers—the dairy price support
program (DPSP) and the Milk Income Loss Contract (MILC) program. Previous authority for
these programs was governed by the 2002 farm bill (P.L. 107-171) through 2007, and extended
into 2008 by the enactment of various short-term farm bill extensions. As part of more than one
year of hearings and debate on the omnibus farm bill, Congress considered whether to reauthorize
these two programs in their current forms or with modifications.
P.L. 110-246 reauthorizes the MILC program through September 30, 2012, and the DPSP through
December 31, 2012, with several modifications as discussed in this report. The DPSP provides
indirect price support to dairy farmers through government purchases of surplus dairy products at
statutory prices. The MILC program supports farmer income through direct payments to
participating dairy farmers when the market price of farm milk in any month falls below a
legislatively mandated target price.
A third federal dairy policy tool, federal milk marketing orders, requires dairy processors to pay a
minimum price for farm milk depending on its end use. Federal orders are permanently
authorized and hence do not require periodic reauthorization. Instead, changes are generally made
administratively by USDA and approved by farmer referendum. However, issues such as the
proposed authority for processors to be exempt from federal order minimum prices processors
when they forward contract with dairy farmers were brought to the attention of Congress in the
farm bill debate. P.L. 110-246 authorizes a forward contract program (through September 30,
2012) and contains safeguards designed to ensure that dairy farmers are not compelled by
processors to participate in the program. The 2008 farm bill also authorizes a commission to
review and evaluate federal milk marketing order policies and procedures.
Separately, the 2008 farm bill reauthorizes the Dairy Export Incentive Program. It also requires
Alaska, Hawaii, and Puerto Rico to contribute to an ongoing dairy promotion program that is
currently supported by mandatory assessments on dairy producers in the 48 contiguous states.
This provision was included to allow USDA to implement a 2002 farm bill-mandated extension
of this assessment to imported dairy products. This provision was supported by most milk
producer groups, but opposed by dairy importers and processors.
See the Appendix at the end of this report for a side-by-side comparison of the enacted 2008
farm bill with previous law and the House and Senate farm bill dairy provisions.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
’•”ȱ—Œ˜–Žȱ˜œœȱ˜—›ŠŒȱǻǼȱ›˜›Š–ȱ
ŠŒ”›˜ž—ȱ
In FY1999-FY2001, Congress provided just over $32.5 billion in emergency spending for U.S.
Department of Agriculture (USDA) farm commodity support programs, primarily to help farmers
recover from low farm commodity prices. The majority of these funds were for supplemental
direct farm payments made to producers of certain supported farm commodities, including milk.
Of this amount, dairy farmers received total supplemental “market loss” payments of $1 billion
over three years.
Some dairy farmer groups sought a permanent direct payment program for dairy farmers to be
included in the 2002 farm bill as a means of supplementing dairy farm income when farm milk
prices are low. Prior to these emergency payments, dairy farmers generally were not recipients of
direct government payments. However, some groups contended that farm milk prices had been
volatile in recent years and that dairy farmers needed more income stability.
Separately, the Northeast Dairy Compact, which provided price premiums to New England dairy
farmers when market prices fell below a certain level, expired on September 30, 2001. These
premiums were funded by assessments on fluid milk processors, whenever fluid farm milk prices
in the region fell below $16.94 per hundredweight (cwt.). Supporters of the Northeast Compact
had sought for an extension of the compact; the southeastern states were seeking new authority to
create a separate compact. However, dairy processors and Upper Midwest producers strongly
opposed regional compacts.
In response, the Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the 2002 farm
bill) authorized a new counter-cyclical national dairy market loss payment program. (Upon
implementation, USDA dubbed the program the Milk Income Loss Contract (MILC) program.)
This program was created as an alternative to regional dairy compacts and ad-hoc emergency
payments to farmers, by authorizing additional federal payments when farm milk prices fall
below an established target price. Authority for the MILC program originally expired on
September 30, 2005, as required by the 2002 farm bill. However, several subsequent measures
granted short-term extensions of the MILC program and many other expiring farm bill authorities
to allow Congress to complete work on the 2008 farm bill.
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱŠ—ȱœœžŽœȱ
Under the now-expired 2002 farm bill authority for the MILC program, participating dairy
farmers nationwide were eligible for a federal payment whenever the minimum monthly market
price for farm milk used for fluid consumption (Class I) in Boston fell below $16.94 per
hundredweight (cwt.).1 Eligible farmers then received a payment equal to 34% of the difference
between the $16.94 target price and the lower monthly market price. The 2002 law required that
payments be limited to the first 2.4 million pounds of annual milk production per dairy operation
(which is roughly equivalent to the total annual production of a 130-cow operation).
1
A hundredweight (or one hundred pounds) of milk is roughly equivalent to 11.6 gallons of milk.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
ȱ›˜Ÿ’œ’˜—œȱ’—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
Section 1506 of the 2008 farm bill (P.L. 110-246) extends the authority for the MILC program
until September 30, 2012, and retains the base target price at $16.94 per cwt. However, the 2008
farm bill makes significant changes to the MILC payment structure in the following ways:
•
Payment Percentage Rate Increased: Until September 30, 2008, a dairy
producer continued to receive a payment equal to 34% of the difference between
the $16.94 per cwt. target price and the market price, in any month that the
Boston market price fell below $16.94. However, from October 1, 2008 through
August 31, 2012, the 2008 farm bill raises the payment rate to 45% of the price
deficiency, which results in a one-third larger payment to eligible farmers in
months when a payment is triggered. The payment percentage rate will revert to
the 34% level for the final month of the program (September 2012). This
reversion was included to minimize long-term budget outlays, so that the cost of
increasing the percentage payment rate does not get built into the baseline budget
once the program expires.
•
Production Payment Limit Increased: The 2008 farm bill maintained the
payment quantity limit at 2.4 million pounds through September 30, 2008, and
then raised the payment limit to 2.985 million pounds of annual production
(equivalent to about a 160-cow operation) between October 1, 2008, and August
31, 2012. Like the increase in the percentage payment rate, the eligible
production limit will revert to its original level (2.4 million lbs.) for the last
month of program authority (September 2012) so that the budget baseline for
future years does not include the cost of the increase. Since the inception of the
MILC program, large dairy farm operators expressed concern that the 2.4 million
lb. payment limit negatively affected their income. For larger farm operations,
their annual production is well in excess of the limit, and any production in
excess of that receives no federal payments. An increase was not part of the
House-passed version of the bill, and the final level of 2.985 million lbs. is below
the Senate-passed level of 4.15 million lbs.
•
Payment Level Feed-Price Adjustment: Because of the rapidly rising cost of
feed, some dairy farm groups had sought some type of adjustment to federal
dairy support programs to soften the impact. The final 2008 farm bill includes a
provision that adjusts upward the $16.94 target price in any month when feed
prices are above a certain threshold. The law requires USDA to calculate monthly
a National Average Dairy Feed Ration Cost based on a formula that USDA
currently uses to calculate feed costs. In any month that the average feed cost is
above $7.35 per cwt., the $16.94 target price will be increased by 45% of the
difference between the monthly feed cost and $7.35. To reduce budget exposure,
the threshold feed cost will rise to $9.50 per cwt., effective for the last month of
the program (September 2012).
ȱ˜œȱœ’–ŠŽœȱ
In 2008, the Congressional Budget Office (CBO) estimated that the increase in the percentage
payment rate to 45%; the increase in the payment limit to 2.985 million lbs. of annual production;
and the institution of a new feed cost adjuster would together add $395 million to the cost of the
MILC program over the five-year authorization period (FY2008-FY2012). This budget scoring
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
was based on the March 2007 CBO baseline, which was the official benchmark for the scoring of
the 2008 farm bill. When scored against the more recent CBO baseline (January 2009), the
increased costs associated with changes in the MILC program are, in fact, more than offset by
lower overall program costs associated with higher projected milk prices through FY2012, even
after incorporating the effect of the recent decline in milk prices.
–’—’œ›Š’˜—ȱŠ—ȱ—žœ›¢ȱ˜œ’’˜—œȱ
During the farm bill debate, the Bush Administration supported a continuation of MILC payments
at the then-current target price of $16.94 per cwt. and the 2.4 million lb. payment cap. However,
in order to defray the cost of MILC program extension, the Administration recommended that the
percentage payment rate be gradually reduced over a five-year period to 20% by FY2013. The
Administration also wanted to base payments on historical production rather than current
production in order to forestall potential challenges in the World Trade Organization (WTO).
The National Milk Producers Federation (NMPF), the largest trade association representing dairy
farmer cooperatives, also supported a direct payment program for farmers. In order to make the
program less susceptible to challenges in the WTO, NMPF initially proposed making direct
payments of $0.50 per cwt. to dairy farmers (regardless of the level of market prices) on the
average production level of 2005 and 2006, up to $40,000 per farm.
The International Dairy Foods Association (IDFA), the largest trade association of dairy
processors, opposed extension of the MILC program, contending that it works at cross purposes
with the dairy price support program and contributes to the overproduction of milk and to high
government costs. Instead, IDFA proposed a dairy farm revenue insurance program that it said
would provide a better safety net for farmers without distorting milk markets.
ȱŠ¢–Ž—œȱŠ—ȱŘŖŖŞȱŠ›–ȱ’••ȱ–™•Ž–Ž—Š’˜—ȱ
USDA began accepting applications for the original MILC Program on August 15, 2002. (See
Table 1 for MILC payment history.) In September 2007, farm milk prices set a record high as the
Class I Boston farm milk price reached $25.16 per cwt., which is $9.22 above the $16.94 per cwt.
target price. For the latter half of 2007 and all of 2008, farm milk prices remained well above the
MILC trigger price, precluding the need for any MILC payments. Falling milk prices in recent
months, however, have raised the likelihood of MILC payments in 2009. While the Class I
Boston farm milk price for January 2009 is $18.99 per cwt, or $2.05 per cwt above the trigger
(excluding any feed cost adjustment), many dairy economists are projecting that farm milk prices
will decline to the point that the MILC payments will be triggered for the balance of 2009.
Individual producers must select which month to begin receiving payments, based on their
projection of potential payment rates and the possibility of hitting the production payment limit.
USDA issued a final rule on December 4, 2008, amending the regulations for the previous MILC
program to change the payment rate formula and production limit and include the feed cost
adjustment (73 Federal Register 73764-73768). Also, payments are subject to adjusted gross
income (AGI) provisions in the 2008 farm bill, which are being implemented through a separate
rule (73 Federal Register 79267-79284, issued December 29, 2008). If nonfarm AGI is greater
than $500,000, the farm is not eligible to receive MILC payments. USDA began program signup
on December 22, 2008. Producers may sign up through the program’s expiration on September
30, 2012.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
. Monthly Milk Income Loss Contract (MILC) Payment Rates
Table 1
Payment
(per hundredweight)
Month
December 2001
January 2002
February 2002
March 2002
April 2002
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
Sept.- Dec. 2003
Source:
$0.77
$0.78
$0.78
$0.93
$1.00
$1.09
$1.20
$1.38
$1.45
$1.45
$1.59
$1.39
$1.43
$1.41
$1.56
$1.75
$1.82
$1.79
$1.78
$1.76
$1.22
$0.00
Month
January 2004
February 2004
March 2004
April 2004
May 2004-May 2005
June 2005
July-November 2005
December 2005
Jan.-Feb. 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
Mar 2007-Jan. 2009
Payment
(per hundredweight)
$0.83
$0.95
$0.79
$0.02
$0.00
$0.03
$0.00
$0.04
$0.105
$0.41
$0.84
$0.925
$1.00
$0.80
$0.925
$0.965
$0.43
$0.44
$0.43
$0.03
$0.10
$0.00
USDA, Agricultural Marketing Service (AMS).
ŽŽ›Š•ȱ˜œȱ˜ȱȱ
Over the more than five years of MILC program payment authority, its cumulative cost has been
$2.5 billion. The FY2003 total of $1.8 billion includes two fiscal years worth of payments, since
retroactive payments for FY2002 were made over the course of FY2003. Five states have
accounted for just over one-half of the total payments made over the time period (see Table 2).
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
Table 2. MILC Payments Ranked by State, FY2003-FY2007
FY2003
FY2004
FY2005
FY2006
FY2007
Total
(Oct-Feb)a
Wisconsin
New York
Pennsylvania
Minnesota
California
Michigan
Ohio
Iowa
Texas
Vermont
Idaho
Missouri
Illinois
Washington
Indiana
Kentucky
Virginia
Tennessee
South Dakota
Maryland
Oregon
Utah
Georgia
Kansas
North Carolina
Nebraska
Puerto Rico
New Mexico
Oklahoma
Louisiana
Florida
Maine
Colorado
Arizona
North Dakota
$372,042,880
169,423,978
160,673,846
147,400,075
122,764,930
75,828,865
68,772,479
60,686,427
38,793,821
40,826,421
33,211,800
36,267,942
34,170,687
30,869,213
30,180,470
31,094,215
29,876,611
24,469,076
20,355,578
18,132,857
16,295,432
15,782,707
15,764,327
15,747,021
15,395,265
14,835,308
12,388,197
11,493,657
12,519,405
11,430,924
9,783,286
10,250,302
8,754,312
7,641,285
8,964,621
$41,754,746
17,222,870
19,263,582
15,946,997
25,142,045
8,799,034
7,550,599
6,512,172
6,282,787
4,389,019
5,496,523
3,426,748
3,818,084
5,064,507
3,510,016
3,364,755
2,895,202
2,545,783
2,148,893
1,774,254
2,178,087
2,027,249
1,930,999
1,775,859
1,766,672
1,588,040
4,222,742
2,825,129
1,307,138
1,066,703
1,761,420
984,845
1,537,030
1,526,600
1,111,814
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
$1,369,537
383,632
1,352,555
286,412
1,186,734
316,507
194,479
236,348
199,362
138,325
371,276
128,206
158,274
111,841
214,743
96,648
324,527
62,281
31,015
161,405
35,910
-18,216
31,078
57,526
35,218
121,518
381,336
127,273
50,983
31,415
31,601
13,481
52,001
163,838
56,389
$71,838,550
32,257,023
27,082,715
27,169,579
34,913,717
15,563,328
11,922,216
11,629,909
9,024,192
8,126,455
8,719,484
6,204,901
6,144,976
7,539,782
5,255,495
4,508,582
5,174,178
3,853,946
3,738,836
3,184,670
4,036,387
3,419,809
3,136,152
2,765,443
2,764,319
2,544,254
966,771
3,354,332
1,958,338
1,517,821
2,342,573
1,904,303
2,051,322
2,138,679
1,291,575
$23,906,505
10,605,556
10,659,170
9,941,499
10,878,010
5,234,795
4,117,464
4,216,210
2,833,816
2,358,159
1,699,743
1,954,645
2,098,120
1,855,240
1,548,957
1,553,071
1,588,842
1,389,069
1,073,656
919,536
1,163,919
742,235
1,041,666
822,813
662,802
857,155
1,006,833
1,095,265
597,487
449,378
677,334
585,737
595,154
540,790
514,520
510,912,218
229,893,059
219,031,867
200,744,562
194,885,436
105,742,529
92,557,237
83,281,065
57,133,978
55,838,379
49,498,825
47,982,442
46,390,142
45,440,583
40,709,680
40,617,271
39,859,361
32,320,156
27,347,977
24,172,721
23,709,736
21,953,784
21,904,223
21,168,662
20,624,275
19,946,274
18,965,879
18,895,657
16,433,350
14,496,240
14,596,214
13,738,668
12,989,820
12,011,193
11,938,920
Ŝȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
FY2003
FY2004
FY2005
FY2006
FY2007
Total
(Oct-Feb)a
Mississippi
8,916,963
880,166
66,520
1,189,543
370,512
11,423,703
Arkansas
Massachusetts
Connecticut
New
Hampshire
Montana
South Carolina
Alabama
West Virginia
New Jersey
Nevada
Delaware
Wyoming
Hawaii
Rhode Island
Alaska
Virgin Islands
7,499,823
6,877,027
6,143,097
5,095,796
665,206
625,496
699,449
515,693
27,202
8,973
8,509
11,031
1,011,333
1,113,219
1,145,967
973,494
242,656
294,619
307,292
306,335
9,446,219
8,919,334
8,304,314
6,902,350
4,901,714
4,779,476
4,286,766
3,942,927
4,012,708
2,014,582
1,768,299
1,015,120
407,366
451,901
350,368
100,347
519,903
529,781
512,368
459,851
373,719
351,358
184,425
101,807
117,018
36,430
26,291
7,723
21,112
52,581
3,719
13,707
2,101
25,597
2,947
2,655
46,913
390
358
83
1,023,945
914,359
593,777
614,441
596,928
589,067
310,154
205,252
52,150
58,558
35,340
8,682
239,646
275,777
131,026
173,187
233,424
56,619
132,339
50,521
13,763
24,271
14,114
0
6,706,320
6,551,974
5,527,655
5,204,113
5,218,879
3,037,224
2,398,163
1,375,356
637,210
571,550
426,472
116,835
221,125,627
8,789,854
350,480,820
TOTAL
1,795,452,502
114,651,255a
2,490,500,058
No payments were made in FY2008.
Fiscal year total was $157 million. Table will be updated when data become available.
Note:
a.
Š’›¢ȱ›’ŒŽȱž™™˜›ȱ›˜›Š–ȱ
The Agricultural Act of 1949 first established the dairy price support program (DPSP) by
permanently requiring USDA to support the farm price of milk. Since 1949, Congress has
regularly amended the program, usually in the context of multi-year omnibus farm acts and
budget reconciliation acts. (See Table 3 for a recent history of spending on the dairy price support
program and related activities.) Section 1501 of the Farm Security and Rural Investment Act of
2002 (P.L. 107-171, the omnibus 2002 farm bill) authorized a 5½-year extension of the program
through December 31, 2007, at the then-current support price of $9.90 per hundredweight (cwt.)
of farm milk. Several measures were enacted to provide short-term extensions of many expiring
USDA programs, including the DPSP, so that Congress could complete work on a new farm bill.
Historically, the supported farm price for milk is intended to protect farmers from price declines
that might force them out of business and to protect consumers from seasonal imbalances of
supply and demand. USDA’s Commodity Credit Corporation (CCC) supports milk prices by its
standing offer to purchase surplus nonfat dry milk, cheese, and butter from dairy processors.
Government purchases of these storable dairy products indirectly support the price of milk for all
dairy farmers. Under the 2002 farm bill, prices paid to the processors were set administratively by
USDA at a level that would permit them to pay dairy farmers at least the federal support price for
their milk.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
Table 3. Dairy Price Support Purchases and Costs, 1980/81-2007/08
Marketing
Yeara
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-2000
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Net Removals
Milk Equivalent
(billion lbs.)b
12.7
13.8
16.6
10.4
11.5
12.3
5.4
9.7
9.6
8.4
10.4
10.1
7.6
4.2
2.9
0.1
0.7
0.7
0.3
0.8
0.3
0.3
1.2
0.0
0.0
0.0
0.0
0.0
Net Outlays
(million $)
1,975
2,239
2,600
1,597
2,181
2,420
1,238
1,346
712
505
839
232
253
158
4
-98
67
291
280
569
465
622
699
328
31
60
2
-2
CCC
Support Price
($ per cwt.)
13.10
13.49-13.10
13.10
13.10-12.60
12.60-11.60
11.60
11.60-11.35
11.10-10.60
10.60-11.10
10.60-10.10
10.10
10.10
10.10
10.10
10.10
10.10-10.35
10.20
10.20-10.05
10.05-9.90
9.90
9.90
9.90
9.90
9.90
9.90
9.90
9.90
9.90
CCC Purchases as
Percentage of
Production
9.6
10.2
12.0
7.6
8.2
8.5
3.8
6.7
6.7
5.7
7.0
6.7
5.0
2.8
1.8
0.1
0.4
0.4
0.2
0.5
0.2
0.2
0.7
0.0
0.0
0.0
0.0
0.0
U.S. Department of Agriculture, Farm Service Agency, selected publications; World Agricultural Supply and
Demand Estimate report.
Note: The 2008 farm bill, which became law during the 2007-2008 marketing year, specifies product support prices
but not the milk price support level as in previous legislation.
a.
The marketing year is October 1-September 30.
b.
The milk equivalent is the pounds of fluid milk used to manufacture cheese and butter, on a milkfat basis.
Source:
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
Prior to passage of the 2008 farm bill, in order to achieve the support price of $9.90 per cwt. of
milk specified in the 2002 farm bill, USDA had a standing offer to processors to purchase surplus
manufactured dairy products at the following prices, which were administratively established by
USDA: $1.05 per pound for butter, $0.80 for nonfat dry milk, $1.13 per pound for block cheddar,
and $1.10 per pound for barrel cheese. Whenever market prices fell to the support level,
processors generally made the business decision of selling surplus product to the government
rather than to the marketplace. Consequently, the government purchase prices usually served as a
floor for the market price, which in turn indirectly supported the farm price of milk at $9.90 per
cwt.
Government purchases of surplus dairy products have been relatively small since late 2003, as
market prices have remained above the support price. In the early 1980s, the support price was
$13.10 per cwt. and government purchases peaked at $2.6 billion in 1983. A gradual decline in
the support price to $9.90 significantly reduced the cost of the program from peak levels.
In late 2008 and early 2009, after several years of relative inactivity, the price support program
resumed purchases following a decline in milk product prices. USDA estimated that it removed
115 million pounds of nonfat dry milk in 2008 and expects to remove 320 million pounds in
2009, along with small amounts of cheese and butter.
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱŠ—ȱœœžŽœȱ
Section 1501 of the enacted 2008 farm bill (P.L. 110-246 ) extends the dairy support program for
five years (through December 31, 2012), but modifies the program so that it directly supports the
prices of manufactured dairy products at mandated levels. The 2008 farm bill renames the
program the Dairy Product Price Support Program and requires USDA to purchase products at the
following minimum prices: block cheese, $1.13/lb.; barrel cheese, $1.10/lb.; butter, $1.05/lb.; and
nonfat dry milk, $0.80/lb.2 Under previous law, the support price for farm milk was statutorily set
at $9.90 per cwt., and USDA was given the administrative authority to establish a combination of
dairy product purchase prices that indirectly supported the farm price of milk at $9.90. Although
the 2008 law does not specifically state that the overall support price is $9.90 per cwt, each of the
mandated product prices in the law is equivalent to the existing product purchase prices, so farm
milk prices effectively continue to be supported at $9.90.
The shift to a mandated product price support program was based on a proposal submitted by the
National Milk Producers Federation (NMPF), which contended that the previous discretion given
to USDA to establish purchase prices has “undermined the program’s effectiveness.”3 NMPF also
contends that a shift to a dairy product price support program would be viewed as less trade
distorting in the WTO than the previous support program. (See “WTO Implications”, below.)
In order to minimize program costs and the potential accumulation of excess inventories, the
2008 farm bill allows USDA to temporarily reduce the mandated prices when government
purchases of a product exceed a certain specified level. The law allows USDA to reduce (1) the
cheese purchase price by up to $0.10 per lb. when government purchases for a consecutive 122
USDA formally announced these prices in a Farm Service Agency information bulletin dated January 5, 2009,
http://www.fsa.usda.gov/Internet/FSA_File/dpd_bulletin_090105.pdf.
3
See p. 4 of “National Dairy Policy Direction: NMPF’s 2007 Farm Bill Package,” at http://www.nmpf.org/files/file/
NMPF%20Policy%20Direction.pdf.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
month period are between 200 million and 400 million lbs, and up to $0.20 per lb when purchases
exceed 400 million lbs.; (2) the butter purchase price by $0.10 per lb. when 12-month butter
purchases are between 450 million and 600 million lbs, and up to $0.20 per lb. when purchases
exceed 650 million lbs.; and (3) the nonfat dry milk purchase price by $0.05 per lb. when 12month nonfat dry milk purchases are between 600 million and 800 million lbs., and up to $0.10
per lb. when purchases exceed 800 million lbs. Also, at any time, USDA can sell inventoried
dairy products at prevailing market prices, as long as the selling price is at least 120% of the
supported price.
In its farm bill proposal, the Bush Administration supported the extension of the dairy price
support program, viewing it as a low-cost stabilizing influence on farm milk prices. It stated that
many dairy producers see the need for a floor to be kept under farm milk prices to maintain an
adequate milk supply and provide a safety net. Dairy processor groups have expressed concern
that the dairy price support program in combination with MILC payments work at cross-purposes,
by artificially stimulating milk production and causing persistent surpluses. They also question
whether having the government as a guaranteed buyer of surplus products discourages investment
to produce dairy ingredients (e.g., milk protein concentrates) that are increasingly in demand in
the market.
ȱ–™•’ŒŠ’˜—œȱ
Separately, some policymakers have been concerned that because of the way domestic price
support programs are viewed under our trade obligations in the World Trade Organization
(WTO), modifications to dairy support might be required under a new trade agreement. Although
federal outlays for the dairy price support program have been relatively small (under $100
million) in recent years (see Table 3), the WTO measures the level of support differently.
Under current U.S. trade obligations, the aggregate measure of support for dairy is based on how
much higher the domestic support price is set above a fixed world reference price (established in
the WTO at a fixed level of $7.25 per cwt.). The imputed subsidy of $2.65 per cwt. (i.e., the $9.90
domestic support price less the $7.25 reference price) is applied to all domestic milk production.
Using this formula, the United States has notified the WTO that the aggregate measure of support
for the dairy price support program is more than $4.8 billion annually; and it is classified as
“amber box,” or the most trade-distorting category. The current U.S. proposal in the Doha Round
is to reduce its total amber box support from the current $19.1 billion to $7.6 billion. With dairy
support representing such a large percentage of the proposed new maximum, some have
expressed interest in shifting future policy away from price support to some type of WTOcompliant direct payment that is decoupled from price and production. Supporters of the shift to a
dairy product price support program maintain that, under the revised program, only the portion of
milk production that goes into the production of the supported products would have to be notified
to the WTO, and that fluid-use milk and milk used for unsupported manufactured products such
as yogurt and ice cream would be exempt.
ŘŖŖŞȱŠ›–ȱ’••ȱ–™•Ž–Ž—Š’˜—ȱ
With product support prices already specified in statute, USDA issued a final rule on December 4,
2009 (73 Federal Register 73764-73768), in conjunction with the MILC program, to adjust milk
price support regulations (7 CFR Part 1430). USDA specified that support purchases will only be
made from manufacturers and not from third parties such as brokers.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ŽŽ›Š•ȱ’•”ȱŠ›”Ž’—ȱ›Ž›œȱ
ŠŒ”›˜ž—ȱ
The farm price of approximately two-thirds of the nation’s fluid milk is regulated under federal
milk marketing orders. Federal orders, which are administered by the U.S. Department of
Agriculture (USDA), were instituted in the 1930s to promote orderly marketing conditions by,
among other things, applying a uniform system of classified pricing throughout the market. Some
states, California for example, have their own state milk marketing regulations instead of federal
rules. Producers delivering milk to federal marketing order areas are affected by two fundamental
marketing order provisions: the classified pricing of milk according to its end use, and the pooling
of receipts to pay all farmers a blend price.
Federal orders regulate dairy handlers (processors) who sell milk or milk products within a
defined marketing area by requiring them to pay not less than established minimum class prices
for the Grade A milk they purchase from dairy producers, depending on how the milk is used.
This classified pricing system requires handlers to pay a higher price for milk used for fluid
consumption (Class I) than for milk used in manufactured dairy products such as yogurt, ice
cream, and sour cream (Class II products), cheese (Class III), and butter and dry milk products
(Class IV products). These differences between classes reflect the different market values for the
products.
Blend pricing allows all dairy farmers who ship to the market to pool their milk receipts and then
be paid a single price for all milk based on order-wide usage (a weighted average of the four
usage classes). Paying all farmers a single blend price is seen as an equitable way of sharing
revenues for identical raw milk directed to both the higher-valued fluid market and the lowervalued manufacturing market.
Manufactured class (Class II, III and IV) prices are the same in all orders nationwide and are
calculated monthly by USDA based on current market conditions for manufactured dairy
products. The Class I price for milk used for fluid consumption varies from area to area. Class I
prices are determined by adding to a monthly base price, a “Class I differential” that generally
rises with the geographical distance from milk surplus regions in the Upper Midwest, the
Southwest, and the West. Class I differential pricing is a mechanism designed to ensure adequate
supplies of milk for fluid use at consumption centers. The supply of milk may come from local
supplies or distant supplies, whichever is more efficient. However, local dairy farmers are
protected by the minimum price rule against lower-priced milk that might otherwise be hauled
into their region.
Proponents of federal orders argue that orders are necessary because dairy farmers have a
competitive disadvantage vis-à-vis dairy handlers (processors) when it comes to determining
prices that farmers receive for their raw, perishable milk. Critics contend that federal orders are
arcane and outdated, and that the complexity of the system places dairy processors at a
competitive disadvantage in the market.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱŠ—ȱœœžŽœȱ
Š’›¢ȱ˜› Š›ȱ˜—›ŠŒ’—ȱ
A forward contract is a cash market transaction in which a seller agrees to deliver a specific
commodity to a buyer at some point in the future at a mutually agreed to price. A dairy farmer and
a proprietary milk handler4 theoretically can engage in a forward contract, whereby the farmer
would deliver milk to the processor at an agreed to price and future date of delivery. However,
prior to enactment of the 2008 farm bill, if the monthly federal milk marketing order minimum
price was above the forward contract price, the handler was still required to pay at least the
federal order price for the milk. Proprietary handlers, therefore, had little incentive to enter into
forward contracts, since they were prohibited from paying a price less than the federal milk
marketing order minimum price. A pilot dairy forward pricing program was authorized by the
FY2000 omnibus appropriations act, which USDA implemented from mid-2000 until its required
expiration date of December 31, 2004.5
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱŠ—ȱ–™•Ž–Ž—Š’˜—ȱ
Section 1502 of the enacted 2008 farm bill authorizes a dairy forward pricing program that is to
be administered in a similar manner as the temporary pilot program in 2000-2004. Like the
original pilot program, the forward pricing program allows dairy farmers and cooperatives to
voluntarily enter into forward contracts with milk handlers. Any payments made by milk handlers
under the contract will be deemed to satisfy the minimum price requirements of federal milk
marketing orders. The program applies only to milk purchased for manufactured products
(Classes II, III, and IV), and therefore does not include milk purchased for fluid consumption
(Class I). The provision allows new contracts to be entered into until September 30, 2012, but no
contract can extend beyond September 30, 2015. USDA issued a final rule for the Dairy Forward
Pricing Program on October 31, 2008 (73 Federal Register 64868-64872).
Dairy processor groups, primarily the International Dairy Foods Association, sought this
provision so that proprietary handlers could be exempt from the minimum pricing requirements
of federal orders when they enter into a forward contract with dairy farmers. Proponents contend
that proprietary handlers should have the same ability to forward contract as dairy cooperatives.
(Under current law, dairy cooperatives are exempt from having to pay the federal order minimum
prices to its members.) They also maintain that forward pricing is an effective risk management
tool for both farmers and processors, allowing them to insulate themselves from the volatility of
farm milk prices. Critics, including the National Milk Producers Federation, were concerned that
handlers might compel small farmers to participate in a contract, and possibly use the contract as
a means of undermining the federal order pricing system.
4
A proprietary handler is a milk processing company that is owned privately or publicly by investors other than milk
producers. This structure differs from a cooperative, which is owned and operated by its farmer members.
5
For more information on the pilot program, see the USDA Agricultural Marketing Service website at
http://www.ams.usda.gov/dairy/for_contr_pilot.htm.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
›ŽŠ–•’—’—ȱž•Ž–Š”’—ȱ›˜ŒŽž›Žœȱ
Unlike the dairy price support program and the milk income loss contract program, federal milk
marketing orders are permanently authorized and therefore do not require periodic reauthorization
by Congress. Instead, changes to federal milk marketing orders are handled administratively by
USDA’s Agricultural Marketing Service. The authorizing statute for federal milk marketing
orders requires USDA to use formal rulemaking procedures to make changes to orders. Any
interested party can petition USDA to create a new order or amend an existing one. The terms of
a new or amended order are developed through public participation (producers, processors and
consumers) in hearings held by USDA prior to the issuance of the order. USDA analyzes the
hearing records and then recommends the terms and provisions of milk marketing orders. If twothirds of the voting producers approve a new or an amended marketing order, the Secretary then
approves and issues the order.
Some dairy producer groups have expressed concern that this rulemaking procedure can take
many months and sometimes years to reach a conclusion and that the process needs to be
streamlined. USDA admits that the process is time consuming, but counters that it provides for
maximum industry participation and transparency. The International Dairy Foods Association
(IDFA) contends that the rulemaking process prevents dairy farmers and processors from
competing with other food and beverage industries that are not faced with government
intervention. IDFA considers federal milk marketing orders to be outdated and unresponsive to
market forces, and proposed that Congress establish a blue ribbon commission of stakeholders
and experts to review the federal order system in its entirety.6
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱŠ—ȱ–™•Ž–Ž—Š’˜—ȱ
Section 1504 of the enacted 2008 farm bill contains several revisions to federal order amendment
procedures that include time limits for USDA to take specific actions. On August 20, 2008,
USDA issued a final rule to provide supplemental guidelines, time frames, and procedures for
amending federal milk marketing agreements and orders (73 Federal Register 49085-49090).
Section 1509 includes the authorization of a blue ribbon commission to examine the future and
efficacy of federal milk marketing orders.
Š’›¢ȱ¡™˜›ȱ—ŒŽ—’ŸŽȱ›˜›Š–ȱ
First authorized in 1985, the Dairy Export Incentive Program (DEIP) provides cash bonus
payments to U.S. dairy exporters. The program was initially intended to counter foreign (mostly
European Union) dairy subsidies, but subsequent farm bill reauthorizations expanded its purpose
to market development. Payments since the program’s inception have totaled $1.1 billion, with
the most recent expenditures made in FY2004. The program was active throughout the 1990s,
peaking in 1993 with $162 million in bonuses (see Table 4).
U.S. dairy product exports made with DEIP bonuses are subject to annual limitations under the
WTO Uruguay Round Agreement. The limits are 68,201 metric tons of nonfat dry milk, 21,097
6
See page 22 of the International Dairy Foods Association’s Blueprint for the 2002 Farm Bill, “Ensuring a Healthy
U.S. Dairy Industry” at http://www.healthydairyindustry.org.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ȱ
tons of butterfat, and 3,030 tons of various cheeses. Total expenditures under WTO commitments
are capped at $117 million per year.
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱ
Section 1503 of the 2008 farm bill (P.L. 110-246) extends the authority for the DEIP until
December 31, 2012.
Table 4. Dairy Export Incentive Program Bonuses
Fiscal Year
$ million
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
0
0
8
0
9
39
76
162
118
140
Fiscal Year(s)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005-2008
$ million
20
121
110
145
77
8
55
32
3
0
Source: U.S. Department of Agriculture, Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk
Pricing, July 2004; updated with 2004-08 data from CRS Report RL33553, Agricultural Export and Food Aid Programs,
by Charles E. Hanrahan.
Š’›¢ȱ–™˜›ȱœœŽœœ–Ž—ȱ
The Dairy Producer Stabilization Act of 1983 (7 U.S.C. 4501-4514) authorized a national dairy
producer program for generic dairy product promotion, research, and nutrition education. The
program is funded through a mandatory 15-cent per hundredweight assessment on all milk
produced and marketed in the 48 contiguous states. Section 1505 of the 2002 farm bill (P.L. 107171) amended the 1983 act requiring that the 15-cent assessment be collected on all imported
dairy products. Section 1505 also required USDA to consult with the Office of the U.S. Trade
Representative (USTR) before implementing the assessment on imports to ensure that the new
requirement is consistent with U.S. international trade obligations. After consulting with the
USTR, the Secretary of Agriculture determined that a mandatory dairy import assessment is not
permissible, since Alaska and Hawaii are exempt from the domestic assessment. According to
USDA, the exemption treats some domestic producers more favorably than importers, thereby
violating U.S. trade obligations. Hence, USDA has never implemented the import assessment.
ŘŖŖŞȱŠ›–ȱ’••ȱ›˜Ÿ’œ’˜—œȱ
Section 1507 of the enacted 2008 farm bill adopts the Administration’s proposal to ensure that the
current 15-cent assessment applies to Alaska, Hawaii and Puerto Rico. The Administration
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ
ȱ
Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
contends that the statutory change would make the definition of the United States consistent with
the definition used by the USTR and U.S. trading partners, thus allowing them to implement the
assessment in imported products. The enacted 2008 farm bill also reduces the assessment on
imports from 15 cents to 7.5 cents.
The import assessment is supported by most dairy producer groups. However, milk producers in
Alaska and Hawaii were opposed to any definition change that required them to contribute to the
program. Dairy importers and processors are opposed to the import assessment, contending that it
is an unfair tax on imported products which they say could be challenged as trade distorting in the
World Trade Organization, regardless of whether Alaska and Hawaii are included.
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
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Previous Law/Policy
Dairy Price Support Program
Mandatory support for farm price of milk at
$9.90 per hundredweight (cwt.). Program
authority expired on December 31, 2007, but
was extended into May 2008 by the enactment
of various short-term farm bill extensions.
House-Passed Farm Bill
(H.R. 2419)
Senate-Passed Substitute
Amendment (H.R. 2419)
Enacted 2008 Farm Bill
(P.L. 110-246)
Mandates the direct support of cheese,
nonfat dry milk, and butter at specified
prices for five years (through December 31,
2012). This is a change from supporting the
farm price of milk. [Secs. 1401(a)-(b)]
Similar to the House bill.
Adopts the House provision.
[Secs. 1601(a)-(b)]
[Sec. 1501(b)]
Specifies minimum purchase prices of: block
cheese, $1.13/lb.; barrel cheese, $1.10/lb.;
butter, $1.05/lb.; and nonfat dry milk,
$0.80/lb (same levels currently used to
support the farm price at $9.90 per cwt.)
Allows USDA sale of acquired products
when market prices rise to 110% of
purchase price. [Sec. 1401(b)]
Allows a temporary reduction of mandated
purchase prices when USDA acquisitions of
surplus dairy products exceed specified
levels. [Sec. 1401(c)]
Similar to the House bill.
Adopts the House provision.
[Secs. 1601(b)-(c)]
[Sec. 1501(c)]
No comparable provision.
Adopts the House provision.
Extends the MILC program for five years,
through September 30, 2012, at the current
target price of $16.94/cwt. Payment rate
remains at 34% of any deficiency between
the market price and the target price, and
eligible production continues to be capped
at 2.4 mil. lbs. per farm per year. [Sec. 1406]
Increases, through August 31,
2012, the payment rate to 45%,
and raises the cap on eligible
annual production to 4.15 mil.
lbs. per farm. Payment rate and
production cap would return to
34% and 2.4 mil. lbs. for the last
month of program authority in
September 2012. [Sec. 1602]
[7 U.S.C. 7981a-c]
Farm support price of $9.90 indirectly
maintained by USDA offer to purchase butter,
cheese, and nonfat dry milk from processors at
prices determined by USDA that allow buyers
to pay farmers at least the support price.
[7 U.S.C. 7981a-c]
No more than twice annually, USDA can adjust
the purchase prices of butter and nonfat dry
milk (reduce one and raise the other) in order
to minimize acquisitions. [7 U.S.C. 7981d]
Milk Income Loss Contract Payments
The 2002 farm bill mandated a new countercyclical payment program, the Milk Income Loss
Contract (MILC) program. When the monthly
fluid milk price falls below $16.94/cwt., all dairy
farmers are paid an amount equal to 34% of the
difference between $16.94 and the lower
market price. Payments per farm are limited to
2.4 million lbs. of annual production. MILC
authority expired Sept. 30, 2005, but was
extended into May 2008 by the enactment of
various short-term extensions. [7 U.S.C. 7982]
ȬŗŜȱ
[Sec. 1501(d)]
Extends the MILC program through
September 30, 2012 and maintains the
target price at $16.94. Until October 1,
2008, payment percentage rate continues
at 34%, and production payment limit at
2.4 million lbs. From October 1, 2008
through August 31, 2012, the rate is
increased to 45% and the limit to 2.985
million lbs. Reverts to 34% and 2.4
million lbs. for September 2012. The
$16.94 target can be adjusted in any
month that feed costs are higher than a
specified level. [Sec. 1506]
ȱ
Previous Law/Policy
Dairy Forward Pricing Program
The FY2000 omnibus appropriations act
authorized a pilot dairy forward pricing program
implemented from mid-2000 until its required
expiration date of December 31, 2004. It
exempted handlers from having to pay farmers
the federal order price when the forward
contract price turns out to be lower.
[7 U.S.C. 627]
Dairy Export Incentive Program
Provides cash bonus payments to U.S. dairy
exporters, subject to World Trade
Organization obligations to limit export
subsidies. No DEIP bonuses have been awarded
since FY2004. Program authority was extended
into May 2008 by the enactment of various
short-term farm bill extensions. Intended to
counter foreign (mostly EU) dairy subsidies.
House-Passed Farm Bill
(H.R. 2419)
Senate-Passed Substitute
Amendment (H.R. 2419)
Authorizes a dairy forward pricing program
similar to the pilot program of 2000-2004.
Price paid by milk handlers under the
contracts are deemed to satisfy the
minimum price requirements of federal milk
marketing orders. Applies only to milk
purchased for manufactured products
(Classes II, III, and IV), and excludes milk
purchased for fluid consumption (Class I).
Allows for new contracts until September
30, 2012, but no contract can extend
beyond September 30, 2015. [Sec. 1402]
Similar to the House bill. [Sec.
Extends DEIP through December 31, 2012,
with a reference to the Uruguay Round
Agreements Act. [Sec. 1403]
Extends DEIP through
December 31, 2012. [Sec.
Extends the Dairy Indemnity Program
through December 31, 2012.
Similar to the House bill. [Sec.
Enacted 2008 Farm Bill
(P.L. 110-246)
Adopts the House provision. [Sec. 1502]
1606]
Adopts the House provision. [Sec. 1503]
1603(a)]
[15 U.S.C. 713a-14(a)]
Dairy Indemnity Program
Authorizes payments to dairy farmers when a
public regulatory agency directs removal of
their raw milk from the market because of
contamination by pesticides, nuclear radiation
or fallout, or toxic substances and other
chemical residues. Program authority was
extended into May 2008 by the enactment of
various short-term farm bill extensions.
Adopts the House provision [Sec. 1505]
1603(b)]
[Sec. 1405]
[7 U.S.C. 450l]
Dairy Promotion and Research Program
The Dairy Producer Stabilization Act of 1983
authorized a generic dairy product promotion,
research, and nutrition education program,
Ȭŗŝȱ
Extends promotion and research program
authority through Sep. 30, 2012. Amends
the 1983 Act to require producers in all 50
Extends program authority
through Sep. 30, 2012. Does not
address the issue involving the
Adopts the House provision. Also
reduces the assessment to be paid by
importers to 7.5¢/cwt. Authorizes USDA
ȱ
House-Passed Farm Bill
(H.R. 2419)
Previous Law/Policy
funded by a mandatory 15¢/cwt assessment on
milk produced/marketed in the 48 contiguous
states. Assessment extended to imports by Sec.
1505 of 2002 farm bill. Import assessment never
collected because the exclusion of some states
was considered inconsistent with WTO rules.
Program authority was extended into May 2008
by the enactment of various short-term farm bill
extensions. [7 U.S.C. 4501-4514]
states, the District of Columbia, and Puerto
Rico to pay the 15¢/cwt. assessment. [Sec.
Senate-Passed Substitute
Amendment (H.R. 2419)
import assessment.
[Sec. 1604]
Enacted 2008 Farm Bill
(P.L. 110-246)
to issue regulations on time and method
of importer payments. [Sec. 1507]
1407]
Federal Milk Marketing Orders
Federal milk marketing order rules issued by
USDA place requirements on the first buyers or
handlers of milk, including paying at least
minimum prices for the milk depending on its
end use. Perm-anent federal authority to
regulate the handling of milk was first provided
in the Agricultural Adjustment Act of 1933, and
subsequently revised by the Agri-cultural
Marketing Agreement Act of 1937, as amended.
When USDA amends federal orders, it must
issue a notice of a hearing at least three days
prior to the hearing.
Creates a Federal Milk Marketing Order
Review Commission to review and evaluate
the current federal and similar state order
systems. The 18-member Commission is to
consider legislative and administrative
options for: ensuring the competitiveness of
farmers and processors, and simplifying and
streamlining the federal order system.
Report is due within two years of the first
meeting. [Sec. 1409]
Revises order amendment procedures by
placing time constraints on USDA at various
steps of the amendment process.
[7 U.S.C. 608c(17)]
[Sec. 1404]
[7 U.S.C. 601 et seq.]
Creates a Federal Milk Marketing
Order Review Commission, with
same overall functions and
purposes as the House bill, but
with some differences in the
appointment of members and
issues to be studied.
Creates a Federal Milk Marketing Order
Review Commission with 14 members
appointed by USDA. Objectives of the
commission are similar to but modified
from the House version.
[Sec. 1509]
[Sec. 1608]
Also revises amendment
procedures by establishing a
timetable for certain actions, but
with some differences.
[Sec. 1605]
Includes elements of both bills with
regard to the time constraint provisions,
avoidance of duplication, and use of feed
and fuel costs for hearings involving
adjustments to make allowances.
[Sec. 1504]
In late April 2007, USDA announced an error in
nonfat dry milk prices reported to them by
manufacturers over the previous 12 months.
The error contributed to lower farm milk
prices than would otherwise have been the
case.
Requires USDA, within 90 days of
enactment, to submit a report to Congress
on price reporting procedures for nonfat
dry milk, and the effect these procedures
have had on marketing order pricing since
July 1, 2006. [Sec. 1408]
Similar to the House bill, except
that the report is to be filed with
the House and Senate
Agriculture Committees.
Dairy Market Enhancement Act of 2000
requires manufacturers to report to USDA the
price, quantity, and moisture content of dairy
products sold. [7 U.S.C. 1637b]
No comparable provision.
Requires manufacturers to
report sales transactions daily.
Requires USDA to publish the
data each reporting day and
compare it with other dairy
Adopts the Senate provision. [Sec. 1508]
[Sec. 1607)
Mandatory Dairy Commodity Price Reporting
ȬŗŞȱ
Authorizes USDA to establish an
electronic reporting system (subject to
available funds), after which increased
frequency in mandatory reporting of
dairy product sales would be required.
ȱ
Previous Law/Policy
House-Passed Farm Bill
(H.R. 2419)
Senate-Passed Substitute
Amendment (H.R. 2419)
market statistics on a quarterly
basis. [Secs. 1609 and 1610]
Enacted 2008 Farm Bill
(P.L. 110-246)
Provides for quarterly audits of
submitted information and comparison
with related dairy market statistics.
[Sec. 1510]
Ȭŗşȱ
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Š’›¢ȱ˜•’Œ¢ȱŠ—ȱ‘ŽȱŘŖŖŞȱŠ›–ȱ’••ȱ
ž‘˜›ȱ˜—ŠŒȱ—˜›–Š’˜—ȱ
Ralph M. Chite
Section Research Manager
[email protected], 7-7296
˜—›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Dennis A. Shields
Analyst in Agricultural Policy
[email protected], 7-9051
ŘŖȱ
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